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Bloomberg
L.P. announced today the creation of a $75 million venture
capital fund called Bloomberg Beta. It says it will be run
strictly for financial return rather than as a means of bringing
new products and services to Bloomberg.

The fund's focus, says Roy Bahat, the head of Bloomberg Beta, is
on "the next horizon for Bloomberg" in areas such as data
technology, media distribution and human-computer interactions.
As startups continue to disrupt established markets, many large
companies are creating investment arms and incubator programs to
pursue innovation.

Bloomberg quietly established the fund in January, with
headquarters in San Francisco, and it has already made
investments in a handful of startups. Among them are
cloud-computing provider Nodejitsu and
programming-tutorial site Codeacademy.

Bloomberg Beta exists as a separate legal entity from its parent
company. Bahat says this structure will prevent ethical breaches
such as preferential coverage of the startups in its portfolio by
reporters in Bloomberg's news division.

Ian Finley, a vice president of research at Gartner, a technology
research firm, disagrees. "The legal entity thing doesn't
actually change the picture," he says. A "side benefit" of
Bloomberg Beta may be that it can provide Bloomberg News and
Businessweek reporters with "some visibility into reporting areas
that their competitors might not have," says Finley. Bloomberg
came under fire last month over news that its reporters routinely
spied on the activity of people who were using the company's
Bloomberg Terminals, a computer system used widely in the
financial industry.

Finley doesn't doubt that Bloomberg journalists are forbidden
from showing favoritism to startups in which Bloomberg Beta
actually invests. But he says that won't necessarily stop the
venture capitalists from passing tips to reporters about other
startups they have examined. "A typical VC firm of $75 million is
not going to make that many investments, but they will review
thousands of startups a year," he says. "So there may be a huge
amount of value there, with a very low chance for ethics
problems."

But Bahat says his firm won't provide inside information to the
parent company's news division. "The way that I'll work with
Bloomberg journalists is exactly the same way that I would work
with journalists anywhere else," he says. "I will protect the
confidentiality of the companies that we invest in, and of the
companies that we don't invest in."

For a company with a current market capitalization of $1.25
billion, $75 million may seem like a small bank account for a
venture fund. But Bahat says it's "just the right amount of
money" for working with early-stage companies. "A fund of this
size actually enables you to do a lot," he says. "We'll be
writing checks at a range of different sizes."

Bloomberg is not the only big media company to cultivate
startups. The New York Times Co. also
invests in digital startups. What's more, the Times Co.
opened an incubator earlier this
year for early-stage media companies. Its inaugural class of
three is halfway through the four-month program.

"The Times has some of the smartest people in the industry,
working on some of the same problems that we are," says Andrew
Whalen, co-founder of Delve,
one of the timeSpace startups. Delve is a social news reader and
recommendation engine designed to keep organizations on top of
crucial news in their industry. "Having access to the knowledge
inside this company has been pretty incredible."

Whalen calls his tenure so far at timeSpace a mutual learning
experience, in which he and his seven coworkers met with "a good
cross-section of teams at the Times, everyone from design to
product to tech to the newsroom." Times staffers have provided
crucial insight and feedback as Delve redesigns its product,
Whalen says.

Whalen would not confirm whether or not the Times Co. is
interested in investing in Delve. But he did say his eight-person
startup will be launching a private beta with pilot companies
this summer, and is planning to do a "broader public push" in the
fall, at which time the company will seek Series A financing.

Bloomberg Beta and other recent efforts by large media companies
to cultivate startups have a predecessor in IDG Ventures, the
venture-capital arm of International Data Group, the American
company that owns the PCWorld and Macworld media properties. The
company launched IDG Ventures in 1996.

Why is now the right time for a Bloomberg venture-capital fund?
Bahat cites the falling cost of starting a company, which gives
rise to exciting investment opportunities for large companies.
"Sometimes the best inventions come from outside your walls, and
you have to embrace that," Bahat says.